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Sovereign Debt Restructuring Mechanisms--Unintended Consequences of the 2002 IMF Proposal

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  • John F Crean

Abstract

The IMF's 2002 proposal for a new Sovereign Debt Restructuring Mechanism (SDRM) attracted considerable criticism from both emerging market sovereign debt issuers and from private sector financial institutions. This paper outlines the features of the SDRM and its advantages as perceived by the Official Sector. The paper explains the criticisms leveled by emerging market and private sector players. It analyses the likely market responses of lenders in the period prior to any threatened filing under the SDRM and shows how these responses are likely to reduce lending to risky sovereigns and to provoke earlier defaults. With such responses, the expected benefits of any SDRM in terms of the reduction in the frequency and severity of sovereign crises are likely to evaporate.

Suggested Citation

  • John F Crean, 2012. "Sovereign Debt Restructuring Mechanisms--Unintended Consequences of the 2002 IMF Proposal," Working Papers tecipa-452, University of Toronto, Department of Economics.
  • Handle: RePEc:tor:tecipa:tecipa-452
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    More about this item

    Keywords

    SDRM; Sovereign Debt; Sovereign Risk; International Capital Flows; Trade Finance; Moratorium; Foreign Exchange Controls;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements

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